Describe the Strategic Management Failure in Enron That Led It Into Its Demise?

1174 Words Nov 7th, 2010 5 Pages
Do some research on the Internet about what has happened with Enron. Now apply the three questions used to test the merits of a winning strategy (text p13) to Enron. Describe the strategic management failure in Enron that led it into its demise?

Enron was formed in 1986 from the merger of natural gas pipeline companies Houston Natural Gas and Internorth. At the time of filing for Chapter 11 Bankruptcy protection in December 2001, Enron had a portfolio of diversified activities ranging from the transportation of natural gas, the generation transmission and distribution of electricity; marketing of natural gas, electricity and other commodities and related risk management and financial services; development and operation of power plants
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Everything they embarked on showed enhanced performance, both in terms of profitability and competitive strength, though again much of was ultimately illusory.
In an article by Robert Prentice (Enron: A brief behavioural autopsy, 2003), he endeavours to answers as to why Enron turned out the way it did. Prentice believes that there is another facet that affects the corporate board room which he called “behavioural decision theory”.
The premise of the argument is that everyone will act in an honourable manner, because it is simply not worth it not too. Auditors will act honestly and report honestly, because companies need to raise capital (more cheaply). Auditors will act responsibly, because their personal honour and reputation is ultimately their most valuable asset. To follow this rationale through, we then have to conclude that the Enron scandal could not have happened – no one could allow companies’ officers to mislead, aid to commit fraud, assist the employer to commit corporate suicide and receive lengthy prison sentences. Had they been rational about where their actions would take Enron, the CEO and head management might have acted completely different that to what they did. Their actions had the hallmarks of a winning strategy:
• It fits in with the company’s situation
• Creating a “sustainable” advantage

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